The present invention is directed toward the field of computer-implemented employee benefit plans. In particular, a system and method for designing and administering a self-funded survivor benefit plan is disclosed. This system and method are implemented in a specific-purpose computer system operating software ("the survivor benefit plan software") that carries out the functions disclosed in this application. Along with the specific-purpose computer system operating the survivor benefit plan software, the system includes an investment vehicle, such as a trust fund, which is used to maintain sufficient assets in order to meet the liabilities of the survivor benefit plan on an ongoing basis. The novel computer system and software are used to design and implement an employer-specific survivor benefit plan, and then to manage the ongoing administration of the plan, thereby removing this administrative burden from the employer.
A survivor benefit plan is an employee benefit, sponsored by the employer, which provides the employee's designated survivor(s), such as a spouse, children, etc., with a predetermined periodic income stream in the event that the employee dies while a participant in the plan. This type of plan is very attractive to employees because it provides a certain income stream to the designated beneficiaries without the investment problems attendant with a lump-sum payout, thereby ensuring a stable income to the beneficiaries over a period of time.
Individual employees have always been able to provide their own survivor benefit plans. However, there are several disadvantages to this type of single-employee plan as compared to an employer-sponsored group plan. The individual plan is much more costly than the employer-sponsored group plan, due primarily to setup and insurance costs, as well as fees to trustees and other individuals involved in managing the plan. It is simply not feasible, from a cost standpoint, for all but the higher compensated individuals to setup and operate their own survivor benefit plans. Therefore, a group plan, sponsored by the employer, is the most likely vehicle for employees to obtain survivor benefits for their designated beneficiaries.
Prior art survivor benefit plans typically consisted of insurance-based plans. In these types of prior art plans, the employer contacted an insurance company in order to provide the survivor benefit. The insurance company was provided some information on the employee demographics and salary levels, and then presented the employer with a static set of plan choices. The insurance company calculated the estimated liabilities created by the plan and then computed a premium value to be paid by the employer or employees, which also provided for the insurance companies profit for taking on the risk associated with the plan.
This type of prior art insurance-based plan has many disadvantages: (1) it is inflexible, in that the employer is typically provided with a static set of benefit choices for the plan and cannot easily custom-design its own plan; (2) it is more costly than a self-funded plan, as disclosed in the present application, because of the margins necessary to compensate for the uncertainty associated with the risk underwritten by the insurance company, and because of the insurance company's profit; (3) the insurance company plans typically do not provide integration of benefits, in which the survivor income benefit generated by the plan is offset by other employer-selected benefits; (4) the employer must maintain detailed records and data on each employee's benefit level, designated beneficiaries, etc; (5) any gains on investments made using the insurance premiums paid by the employer or employees inure to the insurance company, not to the plan; and (6) the insurance plan usually bears a much greater tax burden compared to a self-funded plan. These are just some of the numerous problems that exist in the prior art.
Therefore, there remains a need in this art for a computer-implemented system and method for designing employer-specific survivor benefit plans.
There remains a more particular need for such a system and method that manages the ongoing administration of the plan, so that the employer need not deploy scarce human resources to the plan's management.
There remains an additional need for a self-funded survivor benefits system that includes a computer system, specific software modules for operating the computer system, and an investment vehicle for holding the assets of the survivor benefit plan on behalf of the employee-designated survivor(s).
There remains another need in this art for such a system that identifies certain high-earning employees as high-risk to the plan and determines the amount of insurance for the plan to purchase in order to mitigate the effect of one such high-earing employee dying and thereby creating a large liability for the plan. An employee is "high-risk" when the calculated survivor income benefit and resulting plan liability exceed a predetermined risk tolerance provided by the employer. High-risk employees create large liabilities for the plan if they die, and therefore it is usually desirable to protect the plan from such liabilities.
There remains a more particular need for such a system that is more cost effective than the prior art insurance-based plans, and which provides a level of customization and flexibility in the design of the specific employer's plan that is unknown in the prior art.
There remains yet another need in this art for a computer system that is capable of designing and managing self-funded employer-sponsored survivor benefit plans that enable flexible funding and that are cost effective. Such a system should be able to design a specific employer plan based on the employer's specific parameters as to how the plan should operate, the employer's other benefits to be integrated, and on data specific to each employee covered by the plan. In designing the plan, it would be desirable for the system to be able to create a financial model of the plan, taking into account the employer parameters, desired benefit integration, predetermined funding level and employee data. The financial model should be created by performing detailed calculations to arrive at a contribution level for the employer and/or employees that meet or exceed the predetermined funding level specified by the employer as applied to the expected liabilities in a particular year.
There remains an additional need for such a computer system that is capable of periodically remodeling the entire benefits plan and recalculating specific contribution levels in order to ensure that the plan is properly funded on an ongoing basis.
There remains yet another need for such a computer system that is capable of providing numerous detailed reports on the status of the plan for use by the employer, taxing authorities and/or other individuals associated with the survivor benefit plan.
Finally, there remains an additional need for such a computer system that, over time, can accumulate mortality statistics on a particular employer, and can then remodel the survivor benefit plan in order to account for the employer-specific mortality data, thereby providing a more accurate estimate of the costs and liabilities of the plan.